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Gold Demand 'Steady' As Physical Buying Offsets ETF Outflows In Q3 - WGC

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Gold Demand ‘Steady’ As Physical Buying Offsets ETF Outflows In Q3— WGC

(Kitco News) - Gold demand was largely unchanged in the third quarter of the year, as massive gold-backed exchange-traded-fund (ETF) outflows were offset by consumers taking advantage of lower gold prices, the World Gold Council (WGC) said in its Gold Demand Trends report.

Total global gold demand was 964.3 tonnes in Q3, just 6.2 tonnes higher on an annual basis, the WGC said on Thursday.

The Council pointed out that a turnaround in global gold demand was restrained by massive outflows from gold-backed ETFs, totaling 103.2 tonnes.

The North American market led the drop in ETFs, accounting for 73% of the outflows, with investors paying more attention to rising equities and optimistic economic growth, the report said.

“Global gold-backed ETFs saw the first quarterly outflows since Q4 2016. This is largely because of the positive macroeconomic backdrop in the U.S. Equity markets performed well, with the S&P 500, Dow Jones and Nasdaq all hitting record highs in Q3. The economy is motoring, inflation is edging up and the Federal Reserve is expected to continue tightening monetary conditions,” the WGC said.

In complete contrast to ETF outflows was physical demand, with investors across the globe stocking up on gold while prices remained low, the WGC reported.

Bar and coin demand surged 28% on an annual basis, rising to 298.1 tonnes in Q3, with growth reported in all markets.

"China – the world’s largest bar and coin market – saw demand rise 25% y-o-y. Iranian demand hit a five-and-a-half year high,” the report highlighted. “The U.S. bar and coin market showed signs of life. Demand reached double-digits – 10.5t, up 74% y-o-y.”

Jewelry demand was also up 6% in Q3, totaling 535.7 tonnes, according to the WGC, with India and China seeing solid increases based on lower jewelry prices.

On top of that, central-bank buying was a major element supporting global gold demand in Q3, with Russia, Turkey and Kazakhstan leading the buying spree.

“Central bank net purchases of 148.4 tonnes in Q3 were 22% higher y-o-y, the highest level of quarterly demand since Q4’15,” the WGC said.

New players during this past quarter included the Reserve Bank of India, the National Bank of Poland, and the Hungarian National Bank.

The need for gold on the technology front was up as well, rising 1% on an annual basis in the third quarter, driven by printed circuit board (PCB) sector.

“This uptick was again driven by strong electronics demand, particularly in the PCB and memory sectors, offsetting a surprising decline in wireless demand,” the report explained.

Gold’s supply, on the other hand, was slightly lower in the third quarter as year-on-year mine production growth was offset by elevated de-hedging and lower recycling, the WGC added.

“Record quarterly mine production of 875.3t in Q3 [was] up 1.9% y-o-y. Second consecutive quarter of significant de-hedging; the global hedge book fell to 197t in Q3. Supply from recycling fell 4% y-o-y; lower gold prices discouraged consumers from selling,” the report noted.

Mine production is expected to continue on its upward trajectory amid renewed optimism in the sector.

“A combination of growth from key producing countries – such as Russia and Canada – as well as the improving production pipeline, will be supportive of further growth in 2018,” the WGC said.

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